Rare earth spat simmers as China targets Japan’s military
Rare earth spat simmers as China targets Japan’s military
Ties between China and Japan have further deteriorated this month after Beijing imposed export bans on dual-use items headed for Tokyo.Dual-use items are goods, software or technologies that have applications across both civilian and military industries — most notably, including rare earth magnets that power motors in cars and play a major role in EVs.Japan Foreign Affairs Vice Minister Funakoshi Takehiro strongly protested the measures in a meeting with Chinese Ambassador to Japan Wu Jianghao, demanding their withdrawal.The restrictions came after Japanese Prime Minister Sanae Takaichi said, in November, that an attack on Taiwan from China could trigger a Japanese military response.Prime Minister Takaichi then proceeded to approve a record spending package for the fiscal year that included a 3.8% increase in the country's annual military budget to ¥9t ($85b).China’s commerce ministry claimed the export ban would only affect military firms. However, having civilian and military applications is what gives an item dual-use status and, despite Beijing’s confidence, the repercussions throughout Japan’s industries are yet to be determined.This is not the first time China has manipulated critical raw mineral exports to Japan.In 2010, China reportedly blocked exports to Japan after an incident in the East China Sea. Whether or not shipments were actually blocked was not determined.Though the threat may have been nothing more than political posturing, Japan was incentivised to secure supply chains and, alongside stockpiling and recycling efforts, invested heavily into rare earth project outside of China to reduce its dependence on Chinese rare earths.Continuing to spearhead this shift, a mining ship departed Japanese shores this week to investigate rare earth rich mud on a world first journey to attempt to continuously lift rare-earth seabed material from 6km deep onto a ship.Due to its proximal location to Asian markets, Australian rare earth producers have been an attractive investment opportunity for countries, like Japan, working to diversify supply chains.Victory Metals chief executive Brendan Clark says rare earths are not merely commodities, they are strategic enablers.“Rare earths have become a frontline supply-chain issue, and governments are racing to address over-reliance on China, both for supply of materials and for processing,” he said.“China’s expanding use of export controls is heightening concern and we expect increasing interest in Australian rare earth offerings as a strategic hedge.”Despite the global shift for alternate supply sources, China’s dominance is bolstered significantly by its processing capability — an area the rest of the world is severely lacking.According to the Japan Organisation for Metals and Energy Security, China leads the world in reserves and production of these minerals, controlling more than 90% of global refining capacity.“Chinese authorities will fiercely protect the processing knowhow held by their local experts, making it more important than ever to invest in expertise in jurisdictions such as Australia,” Mr Clark said.Rare earth processing outside of China is rapidly expanding, led by Lynas Rare Earths’ (ASX: LYC) facilities in Australia, Malaysia and the US as well as Iluka Resources (ASX: ILU) Eneabba refinery in WA.Victory Metals (ASX: VTM) is also leading the development of onshore processing capability for several rare earth elements currently under Chinese export restriction at its North Stanmore project in WA — making it one of the few western aligned sources of these defence critical materials.“The real value lies in processing capacity and industrial capability outside China, and Victory Metals is well-positioned to take advantage of this,” Mr Clark said.China’s recent moves are a fresh reminder to both governments and manufacturers that critical mineral supply chains can be leveraged for strategic advantage.
